Political Capitalism: The Elephant in the Parlor

0:00I was involved in 1979 and 1984 in a kind of an interesting experiment, and that is, I was president and CEO of a thing called the Council for a Competitive Economy, and it was an organization that was dedicated to the idea that if we could bring all the really true free market businessmen together, maybe we could lobby or at least make the case in Washington for a pure free market. And the idea was that there must be a lot A lot of free market guys out there, but maybe they're in different industries and all that, and we could pull them together. After five years as president, I discovered that there were some problems with that model, but there were also some ways that we might be able to approach it.

0:46Unfortunately, by that time, Charles Koch, who had been one of the early supporters of it, felt that it was a lost cause. And while he hadn't put a lot of money into it the last three or four years he still controlled it legally. So he wanted to give the mailing list to Rich Fink who had ideas of starting a grassroots organization called the Citizens for a Sound Economy. So our organization was given over and all our assets to the Citizens for a Sound Economy. Fred Smith who worked for me took some of our stuff and started the Competitive Enterprise Institute. Both of those organizations are the spawn of the Council. The Council isn't talked about much, it's not heard of, it was not mentioned in Brian Doherty's book, Radicals for Capitalism, except in one line, in which he talked to Charles Koch, and it wasn't even mentioned in Rob Bradley's new book on Political Capitalism.

1:49So it's kind of a secret, and this is not a paper that I'm planning to publish as an This is an article in a journal. It's part of a book that I'm writing. And before I die, I'm going to tell the story of the council. Okay, my, whoops, whoops, my, here we go, my, whoops, there we go. My, this is a, this is a, just an acknowledgement for those people who think that I might be a business banisher. I want to put it out there that I believe that the capitalist system, market system, commercial and financial interests are vital to the functioning of the world. Our very survival depends on that. So I'm not business bashing, okay? That's the first point.

2:34My second point though, and really the point of this paper, the takeaway, is twofold. One, economic and financial interests are deeply involved in all legislation and regulation. Anything that's applicable to business, there will be business people involved in it, whether it's the state level or the national level. Because of that, they aggrandize the state. Business is what upholds and energizes and aggrandizes the state in all 8,000 legislative members around the country. There's about 7,500 state representatives. There's about 540 people in Congress. I defy you to find one of those people who doesn't have strong support from some commercial or financial interests.

3:25It's vital to them. And so it's not only that they're involved, but they uphold and they are part of what Albert J. Nock would say the greater state. The government, but we also have the state, which is the king in his court, and all the groups that special interests that aggrandize and uphold the state business or commercial and financial interests are right in the middle of that. Okay. There are some principle free market people out there in business. No question about it. But my experience after over five years and about 20 years as a state lobbyist in Kansas and Maryland and Kentucky and five years on Capitol Hill is that the overwhelming majority are in that position because of circumstance more than ideology.

4:17Bill Gates at one time was very much a guy who didn't believe in being involved in government. He didn't need government. in the trade companies, in a new industry, and most of the people who are, we found in that way, were again, were a result of circumstance more than principle. But it doesn't really matter. Whether we have a lot of them or a little, that's not the point. The point is whether there's only a small number of businessmen who are involved or business interests who are involved in legislation or regulation, or a lot, the fact is they're all out there. There's nothing that isn't a test, and that's the commercial point, or the essence, rather, is that they're riveted on these things, the policies are continuous, professional, widespread, very effective, you know, I flew down here, if there's one thing I hate, it's the Transportation Safety Administration.

5:17Now, we all blame government for that. The airlines not only could have stopped it, they were in favor of it. Why? For the same reason that the Packers wanted the Packers and Stockyards Administration and the security bankers wanted the SEC. They wanted government to convince people that their industry was safe. You should eat meat because the government is showing that it's good. You should invest with us. We weren't the problem of the stock market crash. It's now safe. We're now regulated. And the airlines wanted the federal government to say, don't worry about terrorists, we're going to control it. And they wanted to do it at public expense and not their own. And you can hear that all the time. I heard a baggage guy from Delta saying, hey lady, look, it's not me, it's not Delta, it's federal regulations, you can't put that bag on there.

6:07They always want to pawn it off on the federal government. I'll never get through these. Okay, now there are people who have argued that this business has not been so involved. A great quote I just got to share with you. This is from George Stigler, who was no Austrian, but he was an economic historian, a very funny guy. Anyway, he wrote, imagine the railroad industry under the unwilling control of the Interstate Commerce Commission in 1890. The industry had 700,000 employees, Ten billion dollars worth of capital, dozens upon dozens of powerful, able entrepreneurs. The ICC had five commissioners, a staff of 61, a budget of 150,000, and infinite respect for the members of Congress, who in turn were not lacking in respect for the great industry of railroading. If told that the ICC controlled the railroads, the Duke of Wellington would have repeated himself. Anyone who believed that would believe anything.

7:09And the arguments against Stigler's thesis and that of Gabriel Kolko is, hey, we don't think that the railroads got everything they wanted. Well, the problem with that is, first of all, you don't know what the railroads wanted. And secondly, this is a big tug of war. There are other interests. So there are always commercial and financial interests tugging. One of the things that the railroads wanted was uniform rates, so that if you were a shipper and you wanted to try to use the fact that you were in Richmond and it was farther for you to ship from Richmond to Chicago, the people in Baltimore said, hey, we got an advantage, we're closer to Chicago than Richmond is and if these guys can't make special deals and whether the rates have to be equal, we're home and that's what they did.

7:55So they wanted equal rates so that the shipping industry in Baltimore had the right to out-compete Richmond, and some of these other, Charleston, all these other ports, in New Orleans even. So it's not, it's not, okay, people say, well, all the lefts would say, we don't have capitalism, and they have fascism. Well, it rings true because people can see that. They see business involved in all these things. They see Goldman Sachs and all these companies wanting bailouts and the GM and all that. So the arguments of the left are hard to dispute.

8:42But does it really matter? I mean, does it matter whether we're 10% fascist or 80%? I mean, hardly the point. Okay, also a lot of defenders often discount political power, commercial, financial interests, either because they're ignorant or because they don't want to reinforce those critics. You know, as I said, it's like people think wife-beating reports are just a ploy to discredit males or marriage or something. That's not the point. All wife-beaters are husbands, so let's acknowledge that. Okay, where does the elephant in the parlor come in? The problem is not what business, apart from the aggrandizement of government, the problem is not their individual achievements.

9:30It is that this whole climate, this whole atmosphere, spawns a powerful urge to rationalize. You know, people have said to me, don't you understand business needs to understand that what they should be after is the general welfare, not their own personal interest. I never met a lobbyist, 20 years of state houses and five years of Congress, who didn't say, hey, I can make the argument that what we're asking for is good for people. I can make the argument that it's good, five minutes? Oh, that's great. I'm out of time? Thanks Pete, thank you very much. That's what he did yesterday, I saw it. I never met anybody who didn't say, I can rationalize how this is good.

10:15One of the first things I did when I became president of the council was I went up to Detroit to actually have a televised debate against the executive director by the director or something of the Wayne County Economic Development Commission against the Chrysler bailout. Talk about in the lion's den. But anyway, this guy argued that yes, it's a billion and a half dollars in loan guarantees, but I can argue that this is good not only for the economy, not only for the auto workers, not only for general welfare, Not only for taxpayers, not only for the economy, I mean there was almost nothing that I could say that he couldn't rationalize as a part of the general interest or the general welfare.

11:11And this powerful urge to rationalize political capitalism is a bigger problem than what they actually achieve. And the other thing is that they also, not only are they spawning this powerful urge In order to rationalize, they discourage any discussion of the moral or ethical issue related to using government. So what would happen when I was in Washington is we would find a company or an industry that was very much on the free market side and they didn't want to talk about ideology, they didn't want to talk about the morality or the ethics of it all because I might be back. I might have to be on the other side of this issue. So they have a very strong urge to eliminate any ideas, any ethics, or any morality, they just don't want to be.

12:01They just want to see the government as a tool, like a shovel, that anybody has the right to pick up and use. It's totally a neutral approach. Most managers or executives tend to see their own industries as unique, so that if you go to it, and there are over 40,000 industry associations, 40,000, and the majority of them are in the D.C. area. Every industry, every segment of industry, every regional interest, they're all there. And if you go and talk to them, as I did, they would say, hey, we're a free market, we're free enterprise right down the line. We'll say, what about this? Well, you don't understand. Our industries are kind of unique in that respect. We do need this.

12:46They all see that. The rationalization is impossible to get around. Legitimate progress, okay, hampered by the power of business interest to reinforce, continue the need for, and the perceived majesty of the state, obviously. Unwilling to brag of relative purity or to criticize others. My feeling was after those five years was there's only one hope and that is that we're not going to get people to say that their businesses are pure. Even Charles Koch, famous libertarian, philanthropist and all that, he'd never argued that Koch Industries was pure.

13:33He was a libertarian to the core of his boots, he would say. But, you know, coke is under certain problems, we have certain conditions, we just can't be pure. I never met a businessman who said, my company can be pure. And it's not just a big versus little, and it's not also a owned versus public corporation. It's all of them. They're all guilty of it. So they can't be pure as a business, but they can aspire. And so my model, my model at the end of five years was, I said here's what we have to do, we have to change this organization to more of a business round table and we want to tell business people, I had some lists here, I just remembered, yeah, we want to get some of these CEOs that believe, because I would, Ben Edwards was a chair and CEO of A.G. Edwards Company, and he said, Wagey Edwards can't be pure. But he said, I believe in what you're doing.

14:38Ernest Williger was the CEO of Seeley Company, Seeley Mattresses. He believed, Seeley's not pure, but I believe. Getty Oil, even Chevron, Porter Paints, Steinway Pianos, Gifford Hill, Morton Buildings, New Core Steel. I mean there were a whole bunch of them, money more than Charles and some of these guys understood of individual executives who believed. And so what I proposed to do at the end of five years was, look, let's take this organization, let's restructure it as a business round table organization. And then each of these members, if there's 50 or 75 or 100, will be very prominent and And they will say, I'm on here as an individual because I believe in this ideal. I believe that this is an ethical approach. I'm not saying my company is pure, but I believe in this ethic. And we had 18 members of the board, I'm getting more personal than I meant to be, but we had 18 members of the board, they voted 17 to 1 to go in that direction. Unfortunately,

15:49Unfortunately, the one was Charles Koch, and Charles owned the corporation, it was unbeknownst to our board, it was an actual stock corporation, and he owned it, and so he had the right to eliminate the board and start over, so we didn't do it. but the point the final point is that I believe that socialism won the case because of a moral and ethical ideal we have to get that it's not going to be good enough just to argue intellectual arguments on this practicality or any of these other things it has to be the moral issue has to be injected into that milieu and I think only moral outrage will cause public revolt and undermine and the vitality is what I see as a lamentable symbiosis.